It has been another summer of uncertainty, with Greek political parties then Chinese policymakers having had their respective stabs at inducing market volatility.
However, while some investors fret over the possibility of the yuan devaluation descending into an all-out currency war, Husselbee, Liontrust Asset Management’s head of multi asset, believes there is a more pressing issue at hand.
He expanded: “While the yuan devaluation has an effect on currency trading, it is not going to do much in terms of the Chinese economy, and the Greece situation has always been an issue of political contagion rather than economic.
“The big deal is the Federal Reserve putting up interest rates – that is what has been driving the markets, and will continue to drive markets.”
But while Husselbee pours cold reality on the hot stories of the day, somewhat ironically, the investor anxiety of which he is so sceptical is actually presenting him with investment opportunities.
“Markets want a nice smooth ride, but there are always going to be some bumps along the way,” he said. “Investors are always looking for something to get excited or anxious about, and when they do it can throw up opportunities.”
Husselbee has subsequently identified openings in the bonds space, which, while he is underweight the asset class in his WAY MA Growth Portfolio Fund, have led to sub-set overweights.
“We have been positioning portfolios, particularly bonds, for what I consider the ‘main event’ – the US interest rate rise,” he explained. “Throughout the Greece situation we have taken overweights in European high yield and index-linked bonds, and always have healthy positions in strategic bond funds.
“Bond yields are on the rise, but generally they do not travel up in one go and there will be ebbs and flows. Short-end European bonds are a key play for us – the global recovery is coming through, and, while the US has been the engine in recent years, we are now seeing Europe picking up.”
Husselbee continued: “We are keen on high yield and investment grade. It is a sign of a recovering economy – high yield has been tarnished recently, particularly in the US energy sector, but there are still some opportunities in the European space.”
Husselbee’s exposure to the bond space includes positions in the Axa US Short Duration High Yield Bond and L&G High Income funds.
Other plays that he is employing to nullify volatility are hedging and absolute return – the latter of which he is accessing via long/short industry newcomer Sanditon UK Select – and some extra cash exposure.
“When you feel that you have reached your limit on equities and do not want to add more bonds then you use cash as a way to preserve capital,” said Husselbee.
“However, cash yields very little, and while inflation is low you are almost locking yourself into negative yield. Therefore using absolute return and hedge funds has been an alternative way to negate risk.
“Our cash levels are slightly higher than average, around 5% as opposed to 2-3%. However, it would be higher were we not using the absolute return and hedge funds.”
